All posts tagged European Union

David Cameron’s speech on the U.K.’s future in the European Union could be big news for sterling.

In fact, it could prove to be a defining moment that justifies the pound’s safe-haven status and makes it an even more attractive alternative to the euro.

At the moment, the fortunes of the pound look distinctly poor.

The sterling index has been falling steadily since the start of the year and, as Capital Economics chief U.K. economist Vicky Redwood suggested in recent research, there are seven good reasons to keep selling the currency.

Slow economic growth, more quantitative easing, a deteriorating current-account position, easing of the euro-zone debt crisis, the possible loss of the U.K.’s triple-A rating and a loss of fiscal discipline all feature on the list.

“The notion that benchmarks should be handed to a public utility is almost defeatist — this is the last refuge. Surely we can have a regulatory system that is competitive, capitalist and which allows for innovation.”

The European Commission consultation aims to ensure “benchmarks are not subject to conflicts of interest, reflect the economic reality that they are intended to measure and are used appropriately.”

The poor response to Germany’s latest bund auction is a worrying sign.

It suggests that the malaise affecting bond markets across the euro zone’s periphery could finally be infecting the heart of the core.

To see why, it’s worth thinking about the nature of the euro-zone’s problem. If you were to boil hard, it reduces to this: who pays for the large amounts of debt built up by the countries at its periphery during the good times?

The European Central Bank and the core want the borrowers to make good through a lot of belt tightening. The periphery says it can’t pay. Either the lenders at the core have to eat their losses through defaults, which means banks going bust, or the losses have to be spread across savers, which means inflation.

With the single currency ending 2010 down only about 10 cents on the year, and with the threat of sovereign-debt contagion remaining extremely high, the euro looks ripe for another selloff.

Its performance earlier in 2010 may have been helped by massive doses of liquidity provided by the European Central Bank, as well as by the continued hope that European Union leaders would eventually ride to the rescue.

But, as the year ends, there are not only signs that the ECB is losing patience, as well as credibility, but that EU leaders are still miles away from a permanent solution.

This was certainly the case at last week’s summit in Brussels at which ECB President Jean-Claude Trichet not only lambasted the politicians for their lack of fiscal discipline and sought a doubling in the ECB’s capital base, but at which the leaders themselves sidestepped contentious proposals that would have forced Germany and France to further subsidize weaker euro-zone members.

The euro itself has remained remarkably resilient, as it has done all this month, keeping well above the $1.30 watermark that might suggest it was sinking.

Sweden’s Finance Minister recently said it is right for the country to lend Ireland a wedge of its hard-earned cash to help prop up the euro zone. Tax payers nodded in approval.

How things have moved on since the Nordic state’s awkward entry into the European Union after a bitterly contested referendum fifteen years ago.

Sweden’s relationship with Europe has changed beyond recognition since 1995 and its willingness to bail out Ireland to the tune of €600 million in the same way as it helped Latvia shows how integrated the country has become with its neighbors.

The dual ideas of solidarity and self-interest lie behind much of the reasoning behind the loans.

There are water shortages and salt shortages in Ireland’s capital city at the moment. The country’s actual reservoirs are running low due to leaks and householders who have kept their water running for fear that their pipes will freeze up in the icy weather.

Some local authorities are also running low on salt to grit the roads due to two weeks of heavy snow. Cars are sliding and slipping on black ice, as are pedestrians. Considering that Christmas is approaching and the country is in the midst of the worst economic crisis in living memory, you couldn’t blame the Irish people for the odd wobble.

As Minister for Finance Brian Lenihan stood in the Irish parliament on Tuesday evening delivering the harshest budget in modern times, there were queues outside Bank of Ireland ATMs. Unfounded rumors spread that there was a run on the bank. Don’t always believe what you read on Twitter or Facebook. They are what you might call unreliable narrators.

People wanted money, all right, but not for the reasons you might think. Bank of Ireland had a computer glitch for online, affecting telephone and ATM customers. Some couldn’t access money, while others were able to withdraw more than they were entitled to. Hence the queues. Also, there are often queues outside city center ATMs here.

When it comes to the euro, the late Milton Friedman is starting to look a lot like a prophet whose time is at hand; one vindicated so overwhelmingly by posterity that you start to believe in clairvoyance.

One of the 20th century’s undisputed economic champions, it’s fair to say Friedman never thought much of the single currency’s chances. Way back in 1999, when the euro at last set sail as an accounting unit, the great man wondered whether it would even be able to survive a first economic crisis.

He said:

“It seems to me that Europe, especially with the addition of more countries, is becoming ever-more susceptible to any asymmetric shock. Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.”

European Council President Herman Van Rompuy (L), Ireland’s Prime Minister Brian Cowen (C) and Belgium’s King Albert II (R) pose for an official photo at the start of the Asia-Europe Meeting (ASEM) in Brussels October 4, 2010.

For those who think Ireland will leap into the arms of the EU and International Monetary Fund if it has to keep paying bond investors too high a price for its borrowings, it’s time to think again.

As the government prepares its make-or-break plan to cut its budget deficit to 3% of gross domestic product by 2014, many Irish people are talking of a time when “the man from the IMF” might arrive, and it’s not coming from just those in Ireland’s oversized commentariat.

Ireland places a high value on its hard-won sovereignty–despite having benefited greatly from European Union funding since it became a member in 1973, and having surrendered independent control of its monetary policy when it joined the euro zone in 1999.

So when Martin Mansergh, a junior minister in the Department of Finance, declared in a talk in London Monday night that there is a “widespread determination to retain control over own affairs and avoid outside dictation,” it wasn’t empty rhetoric.